Monthly Precious Metals Technical Analysis Report - January 2021
13 January 2021
Gold – In Brief
Gold recovered well in December, and in early January, before coming to a halt at the 61.80 % retracement of the August-November decline at US$1955. The move higher paused at the daily cloud, oscillating first before overcoming that level to push on. Although the 2020 highs are likely to be a significant barrier, there are multiple targets across multiple time frames suggesting gold will move higher again.
The lift in the gold price was accompanied by a further decline in real rates as proxied via Treasury inflation-lined bonds. The Dollar Index also fell from a December high of 92.51 to a low so far in January of 89.34, helping gold’s rally. Bond yields rose in the final stages of the Senate election in Georgia as the market positioned for a possible Democrat victory, leading to greater stimulus and greater supply to the bond market.
Coronavirus dominates the news as US cases in December rose to 6,360,221. The market started January in a ‘risk off’ mood as the US Presidential election moves towards certification, China prevents access to a WHO delegation sent to examine the initial outbreak of coronavirus, acts more aggressively in Hong Kong, and investors pay for a recent executive order demanding the de-listing of a number of Chinese entities on the NYSE.
The storming of the US Capitol in a last-ditch attempt to thwart the constitutional process was a shock but one that financial markets largely shrugged off, taking bigger cues from the Georgia run-off and the likely effect of the changed composition of the Senate on US policy in 2021 and beyond. The initial move lower in gold was prompted by a surge higher in nominal (and real) yields and the decline then accelerated after President Trump agreed to an orderly hand-over.
Money and Interest Rates
Inflation-linked yields tracked lower and gold moved higher as shown in the 10-year TIPS yield plotted against the spot price below. US forward-looking inflation expectations rallied to just shy of the 2% Fed target (which is no longer a hard target, but part of the Fed’s Average Inflation Targeting policy.)
Quick Overview of Managed Money Positioning in Gold
CME Gold Managed Money futures up to the January the 5th. Gold longs have been adding consistently while shorts sit on the sidelines. As of today’s prices, the buying since the beginning of December is under water. Subsequently to the 5th, total Open Interest declined by around 1.50 million Tozs as the price declined, suggesting a substantial net outflow.
Gold Positioning and Volume-Weighted Average Pricing
Weekly Ichimoku Cloud Chart
Gold rallied strongly to the 61.80 % Retracement of the August-November move before sharply rejecting that level (see below). Support at US$1862 from the Weekly Standard Line, and US$1830 from the Weekly Cloud top. The overall picture is bullish, and the recent sharp drop may see a short (?) sharp recovery to US$1871 initially.
Daily Ichimoku Cloud Chart
Gold finds support in the Daily cloud after higher yields, a higher Dollar and the perception of diminished political uncertainty post the certification of President-Elect Biden give gold a knock.
Gold Hourly Point and Figure – Medium Term
Medium-term Chart: gold sinks to the trend line support extending from the November low upwards. Short term rebound potential. Note the huge downside targets created by the price activity since the August 2020 high. The Hourly box size reflects recent volatility using ‘Average True Range’ thinking on choosing an optimal box size for Point and Figure charts. Those big downside targets are a product of the price action between June 2020 and November 2020 – they will remain in place until gold makes a higher high.
Price Targets via Point and Figure – Short Term
The downside move plays appears to find some consolidation near the final set of targets - scope for a rebound although concerns about yields and a counter-trend USD recovery act as headwinds for gold.
“The low 70s should see silver fade relative to gold.” (December report.) Silver touched 70 before underperforming. Targets to 65, but the 70-80 range remains in place.
Silver in USD
The macro-ish view of silver. After last month’s report, spot silver has managed to remain above the weekly Turning and Standard lines with the Standard line a good level to pick (so far) as a buy-dip level.
Silver in USD – Hourly Point and Figure
Targets for the XAGUUSD. (Having sent the wrong chart last time…) Silver hit the 24.37 target, and now consolidates above, creating multiple price targets back to US$26, where resistance is likely.
Equities - the SPX
Support from the Turning and Standard Lines, notably in last weeks drop. The onward march continues, surely helped by reflationary policies anticipated in 2021 .Valuations are still nose-bleed though, as half the world’s commentators are quick to point out.
SPX Daily Chart with Targets
The SPX has achieved the 3,785 target. Will a down-wave emerge?
The Dollar – DXY
Plenty of interesting observations about the Dollar Index. The recent low 89.209 was not far from the February 2018 low of 88.253, and net positioning has not been this low since March 2011. RSI show the DXY to be oversold, and it would be fairly natural for the price to rally back up to the former supports for a re-test of that area, before turning lower in a bearish phase.
AUD Daily Point & Figure
The AUD breaks up through the long term trendline as the USD weakens. The 0.80-0.81 level is the next strong resistance zone. Iron ore, the Chinese economy and the relative impact of Coronavirus in other economies will all matter. Australian retail sales growth and job vacancies are showing signs of a decent re-bound.
The AUD Hourly Point and Figure
The AUD targeting higher. Further than expected…If the price remains below 0.7820, look for a fade to 0.7630 and 0.7600?
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